Does a first mortgage get paid off completely before a second mortgage gets any money?
April 27th, 2010 | 
Author: I hold a second mortgage on someones home and they are now in foreclosure. Will I get any of my money back? Does the first mortgage have to receive all their money first before I get any?
Posted in Mortgage FAQ
Normally the first lien holder is the first in line to get paid. That is why so much care is taken at closing to verify that any and all liens on a property are identified and accounted for any time a new mortgage is put into place. Every lien holder has a place in line so to speak and the proceeds after sale are limited. Those at the back of the line may come away empty handed. That is the bulk of the reason 2nd mortgage rates are so high – The loans are riskier.
You may not be completely out of luck though. Once the property is foreclosed on, in theory that debt now becomes an unsecured debt and you could seek a deficiency balance judgment against the former homeowner. Somewhat similar to a repo on a car procedure.
It’s best to contact a real estate attorney and see what the best steps are to protect yourself.
NO! There will be no money, the house isn’t being sold, it’s being foreclosed. The second lender will come after you, if you co signed for that second because you are liable for it. Most second loans are what they call “unsecured” loans. While you pledge the property, it’s in second place. If the house forecloses, then there is no money. And the second lien holder loses. You need an attorney to advise you on how to handle this situation.
Yes, you understand how it works. The first lien and any tax liens get paid before you. If nothing is left then you need to sue the homeowner separately.